A strange thing is happening in Europe and it’s boosting real estate in California, thanks to complex political and economic trends. The continent is suffering from a lack of profitable investments, but it’s getting an injection of over $1 trillion in cold hard cash that needs to be invested somewhere.
This combination is indirectly helping California real estate developers, providing another tailwind to an already strong and growing market.
Liquidity Abounds
Thanks to a recent change to the European banking system, the tough economic environment in a continent thousands of miles away is providing good news for California property developers. The central bank for the European Union, the ECB, recently announced a program known as quantitative easing; the program is designed to increase the total amount of euros that are being used in the global economy. To do this, the ECB will begin spending 60 billion euros per month to buy bonds and other assets in Europe.
This is a complicated story, but the end result is that banks will be forced to find new alternatives to invest in. In doing so, they will probably look abroad for places to put the new-found cash that they got from the ECB.
One option is to invest it in the United States and many analysts believe it’s the best option. While there are many reasons for this, the biggest two are the strength of the U.S. dollar and the relatively strong performance of the U.S. economy. While Europe is growing at less than 1%, the U.S. GDP grew at a 2.4% rate in 2014, the strongest rate since the recession back in 2008. That means America is a relatively stable and reliable place to invest.
When those European euros are converted to dollars, they’ll be thrown at a lot of assets: stocks, bonds, and commodities are likely contenders. So is real estate, and this is where the real estate investor is perfectly positioned.
The Hunt for Income
On top of the European search for a safe haven in which to invest those newfound euros, another trend is likely going to encourage more Europeans to invest in American real estate: the search for income, which is in very short supply in the EU.
If you think American savings accounts pay a low-interest rate, you should consider yourself lucky that you’re not German. In Germany, a 10-year government bond pays a whopping 0.38%, and that rate has been going down steadily for over a year. Europeans are desperate for income, which means they will pay close attention to real estate options.
In other asset classes, income is hard to find. Stock dividends are below 3% on average and the U.S. Treasury is paying below 2%. Compared to some parts of the country where yields on property values can go above 5%, the appeal of real estate is pretty obvious.
Financing the Opportunity
As Europeans come to America looking for investment opportunities, they will want new developments, existing properties with leases in place, and properties that can provide a stable stream of income with a bit of redevelopment and improvement. This is where the expertise of the real estate investor comes into play.
If you are a real estate developer or investor in California and you want to finance a project to capitalize on the growing demand for income-producing property, Socotra Capital can help. With years of experience in the California real estate market, we can help you get a profitable real estate venture off the ground.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.
